Month: July 2012

By Central Bank News

Source: ForexYard

After hitting a fresh two-year low against the US dollar yesterday, the euro saw very modest gains in the overnight session. The AUD took significant losses last night after a worse than expected Employment Change figure signaled a possible economic slowdown in the Australian economy. Meanwhile, after gaining around $1.65 yesterday following the US Crude Oil Inventories report, oil gave back some of its gains during the Asian session and is currently trading around the $85.25 level.

Main News for Today

US Unemployment Claims-12:30 GMT

• Following last week’s disappointing Non-Farm Payrolls figure, investors will be closely watching today’s news for clues as to the current state of the US labor sector
• Should the indicator come in above the forecasted 376K, the dollar could take losses against its main currency rivals, including the EUR and JPY

Read more forex news on our forex blog

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

After touching 79.14 key support, USDJPY rebounds strongly, suggesting that a cycle bottom has been formed on 4-hour chart. Further rise to test 80.09 resistance would likely be seen, a break above this level will signal resumption of the uptrend from 77.66, then another rise towards 82.00 could be seen. On the other side, a clear break below 79.14 key support will confirm that the uptrend from 77.66 had completed at 80.62 already, then further decline to 78.00 area could be seen.

Daily Forex Forecast

By MoneyMorning.com.au

If you’re a long-time Money Morning reader, you’ll remember that we’ve warned you about the Chinese economic bubble for at least the last three years.

But despite everything we’ve ever written on the China Bust, we’ve never really given you a concrete action plan or investment strategy to make money from it.

Well thankfully, one top analyst has come up with a plan. There’s nothing complicated about it.

You don’t need to be a millionaire investor, or buy risky derivatives products. In fact, you can get started on it today…

Most in the mainstream refused, and still refuse to accept that the Chinese economy will crash. As The Australian reported in October 2009:

‘Treasury chief Ken Henry has outlined a golden age for the Australian economy lasting to 2050 and beyond, as rapid population growth and Asian demand for resources bring a sustained surge of global investment.’

Today, both of those arguments look a bit ropey.

The latest Census shows the Aussie population is 300,000 fewer than analysts had predicted. And this morning, Bloomberg News reports:

‘China’s weakest growth in three years may pressure Premier Wen Jiabo to further ease the government’s crackdown on a property industry that accounts for more than a quarter of final demand.’

One of the biggest fallacies is that China somehow has the power to steer its economy where it sees fit…

The Mythical ‘Soft Landing’ Beast

That it just has to pull levers or press buttons and things will be fine…China’s economy will engineer a ‘soft landing’.

[By the way, a ‘soft landing’ is where an economy slowly decelerates with only minor economic fallout. Unfortunately, a soft landing is a mythical beast, with about as much chance of appearing as the Yeti.]

The bottom line is that governments – even command economy governments – can’t engineer a soft landing. A boom never turns into a sideways market, it always turns into a bust.

China’s economy is no different.

Legendary investor, Jim Chanos is another China bear. He recently said:

‘I have no doubt that if the Chinese government says that they’re forecasting 7.5% growth this year, no matter what is happening with the real economy they will print 7.5% or better, but I don’t necessarily believe that reflects reality.’

Not surprisingly, analysts surveyed by Bloomberg predict China’s GDP growth will be 7.7%. We’ll know for sure around lunchtime tomorrow.

Chanos is betting against China’s economy by short-selling Aussie and Brazilian iron ore stocks, and Chinese banks. As Chanos says about the banks:

‘As we did more and more work it became very apparent to us that the Chinese banks are the nexus through which all this credit-driven investment is flowing.’

Shorting Chinese banks is great for a big hedge fund. And shorting Aussie miners like BHP Billiton [ASX: BHP] and Fortescue Metals [ASX: FMG] is fine for traders – just ask Murray Dawes.

But not everyone wants to short sell. Because as Chanos says, stock buyers don’t always make the best short sellers because ‘the psychological behaviour is completely different.’

So how else can you profit from the China Bust? Well, Chanos and your editor aren’t the only China bears. Our old pal, Sound Money Sound Investments editor, Greg Canavan has banged on about the China Bust as long as we have…

A Bust Follows its Boom

In a revealing interview with publisher Dan Denning (available to all paying subscribers within the next couple of days), Greg told him:

‘It doesn’t really matter whether you’re a command economy or a purely capitalist economy. If you’ve had a massive misallocation of capital through a credit boom…you can move those debts off the banks and put them into another vehicle but…that represents an asset that is not generating an acceptable rate of return…. China’s savings have been invested in unproductive investments.’

That’s the forerunner to almost every bust. During a boom investors place capital all over the place, because they believe everything will make money.

It’s only when the credit boom ends that investors realise everything won’t make money, because the credit flow that supported the boom has ended.

So, what’s Greg’s solution?

Like Chanos, Greg says China’s banking system is at the centre of everything that has and will go wrong with China.

In a note to subscribers yesterday, Greg wrote:

‘Most of China’s assets are other countries’ debt…for example, US Treasuries. This is not a sound or stable asset base. But if China accumulates gold, it’s buying a pure asset. There is no liability, or counterparty, on the other side of the asset.

‘Say it amasses 5,000 tonnes of gold. At a price of $1,600 an ounce, that’s a value of $282 billion. Not much in the scheme of things. But at $5,000 an ounce, the value of the gold hoard jumps to $882 billion. At $10,000 gold, it becomes $1.76 trillion. At that level, gold would represent around 50% of China’s reserves.’

Greg talks more about his China Bust strategy here.

If you think the idea of China buying gold to shore up bank balance sheets is crazy, think again. Bloomberg News reports, ‘In May, imports by China from Hong Kong jumped sixfold to 75,635.7 kilograms (75.6 metric tons) from a year earlier…’

China has now overtaken India as the biggest importer of gold.

Survive and Prosper from a China Bust

But cornering the gold market is only half the story. It’s no good buying a bunch of gold while leaving your share portfolio as it is.

To really make the most of the coming China Bust, and to make sure your entire wealth and retirement savings are fully protected, you need to give your entire portfolio a service.

As we say, this is something you can put into action today, and it won’t cost you a fortune. To find out more, click here for Greg’s China Bust presentation and see how to get hold of his special report, Red Alert: What You Must Do to Survive and Prosper in the Coming China Crash.

Cheers,
Kris.

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How to Bet Against China’s ‘Ridiculous’ Economy

How Progress Came From the Free Market

How to Survive and Thrive from China’s Bust

By MoneyMorning.com.au

In attempts to ease its mushrooming financial pains, Spain unveiled new austerity measures that aim to reduce 65 billion euros from the public deficit by 2014.

The move is part of an agreement Spain’s Prime Minister Mariano Rajoy made when he accepted a Eurozone bailout for his country’s ailing banking system. Rajoy surrendered to mounting pressure to at least make an effort to avoid a full state bailout.

‘We have very little room to choose. I pledged to cut taxes and now I’m raising them. But the circumstances have changed and I have to accept them,’ Rajoy told the national parliament.

As protests erupted from anti-austerity crowds that gathered in Madrid, Rajoy explained plans to roll back social welfare protections and immediately raise taxes so that he could secure emergency aid and placate jittery investors.

Rajoy announced higher taxes and cuts to unemployment benefits, union pay, and civil service perks.

Amid boos and heckling, Rajoy told the parliament, ‘These measures are not pleasant, but they are necessary. Our public spending exceeds our income by tens of billion euros.’

The moves highlight how Rajoy and Spain are at the mercy of the EU’s tough bailout provisions if the government hopes to get any more money for its struggling banks.

Spain Playing By the Eurozone Bailout Rules

The measures outlined Wednesday constitute the fourth austerity plan from Rajoy during his seven months in office. They’re part of provisions associated with the Spanish economy’s 100 billion euro bailout package.

European leaders maintained the possibility of purchasing Spanish debt to bring down elevated yields as long as Rajoy abides by their demands. Over the past few months, Spain’s borrowing costs have skyrocketed. The yield on the 10-year Spanish government bond eclipsed the 7% level, which is widely viewed as unsustainable.

Following Rajoy’s announcement, the yield inched down to 6.81%.

Struggling Spain and its need for foreign capital to maintain public services and keep its banks from failing has left its government with little control over policies and at the mercy of markets.

Analysts noted that Rajoy has already been forced to rescind some of his campaign promises, putting Madrid under “de facto” supervision from Brussels.

Any Hope for Spain’s Economy?

Beleaguered by five years of economic stagnation and recession, Spain’s unemployment rate has swelled to a staggering 24.4%. With tax revenue falling and the country’s deficit rising, banks are seriously struggling just to stay afloat.

Worries have spread that Spain’s economy may become the next Greece, Portugal, or Ireland and will need a full-blown sovereign bailout.

There is also a growing unease that Italy’s economy may be the next country to hold its hand out, making all the PIIGS recipients of a Eurozone bailout package.

Yet, the EU plods on. In Brussels Wednesday, the European Commission applauded Spain’s new fiscal program, calling it an important step.

On Tuesday, EU finance ministers agreed to allot Spain’s economy an extra year, until 2014, to bring the public deficit down to 3% of gross domestic product (GDP) and eased this year’s target of 6.3%, acknowledging that even the relaxed target is a stretch.

Eurozone Debt Crisis: “Stability” on the Way

In the midst of all this economic turmoil are the increasing questions surrounding Europe’s latest tool to stabilize the euro currency union.

The European Stability Mechanism (ESM), a permanent bailout fund with a maximum lending capacity of 650 billion euros, is designed to replace the European Financial Stability Facility (EFSF) that backed bailouts for Greece, Portugal and Ireland.

The ESM was supposed to be up and running Monday, but it has not yet been ratified by all 17 euro governments.

Announced in June, the ESM was created to break the “vicious circle” between banks and government, which has threatened to bring down the Spanish economy, the region’s fourth-largest economy. At issue is just how much power the ESM will have, if it will be effective, and if it will have enough money to accomplish some of its far-reaching goals.

That’s a lot of “ifs” at a crucial time when decisiveness is needed.

Since the ESM does not yet exist, Spain’s loans will be the responsibility of the banking sector, not the government. But before the ESM is approved other nations may want the Spanish government to guarantee the bailout loans.

‘The credibility of the rescue package for Spain has been called into question even before the loans have been disbursed,’ Nicholas Spiro, director of London-based Spiro Sovereign Strategy, told CNN Money. Spiro added that even with its full firepower, the ESM is ‘woefully inadequate.’

Already, the ESM is sounding unstable – meaning bigger Eurozone bailout packages are likely on the way.

Diane Alter

Contributing Writer, Money Morning

From the Archives…

The Australian Housing Shortage That Never Existed
06-07-2012 – Kris Sayce

Did the European Summit Change the Market Trend?
05-07-2012 – Murray Dawes

Why Government Intervention Hinders Progress and Innovation
04-07-2012 – Kris Sayce

The Big Opportunities in the Oil Market That Will Lead to Profit
03-07-2012 – Dr. Alex Cowie

LIBOR – The Banking Scandal That Could Cause A Riot
02-07-2012 – Dr. Alex Cowie

How Spain’s Economy is Being Squeezed by the Eurozone Bailout Deal

By MoneyMorning.com.au

Christine Lagarde, the head fixer at the International Monetary Fund, says U.S. policymakers need to be more aggressive in dispensing medication to boost America’s punk recovery. Washington bureaucrats, she believes, have all the fiscal and monetary tools they need to get the job done.

Ben Bernanke’s printing press is collecting dust, she thinks, and legions in Washington have stayed home to escape this summer’s uncomfortable climate change.

There’s not enough QEs and Operation Twists to suit Lagarde. Not enough red, white and blue government programs for the IMF brass. Lagarde is hoping for more government “firepower” in the good old U.S. of A.

Well, let’s look at a test case for how the firepower is working out for the Las Vegas real estate market. On July 4, the titans on the Strip kept their powder dry, and the smattering of neighbourhood fireworks displays were no match for the Fourth’s full moon.

If housing demand is all about low rates, why don’t 30-year fixed rates under four percent set loose the animal instincts? Why did the tax incentives for home purchases of a couple years ago only generate a slight blip in sales?

The Underwater Wasteland of Las Vegas Property

Here in the underwater wasteland that is the Las Vegas desert, the ethics of walking away and plight of the typical Vegas homeowner dominated our conversation. A member of our party sells homes for living but hasn’t made a payment on her mortgage in three years, with little harassment from the mortgage holder.

This realtor put down twenty percent back in the boom for a $650,000 home with Indy Mac providing the rest. But now the house will fetch no more than $325,000, and the $200,000 in negative equity is a bridge too far.

The Indy Mac mortgage became the property of OneWest Bank when OneWest bought Indy’s $20.7 billion loan portfolio for $16 billion, with $9 billion of it financed by the FDIC and Federal Home Loan Bank. The haircut was not passed on to Indy Mac’s borrowers.

The underwater realtor has attempted to renegotiate the loan, but OneWest has been unresponsive, until recently. The bank communicated by finally filing a default.

This is a very typical scenario in Sin City. According to Zillow.com, 71 percent of Las Vegas homeowners are underwater, at the same time the unemployment rate remains stubbornly high at 12.4 percent. There are likely hundreds of thousands of people living in homes they ostensibly own, but haven’t made payments on for years.

Some actively fight in court, questioning whether the lender has standing to foreclose. Others attempt to modify only to have their patience tried. They then give up, and wait for the Constable to arrive with the eviction notice.

Not only are there thousands of individuals not paying their mortgages, but, according to a local appraiser, plenty of commercial tenants have not steadily paid rent since the city’s real estate crash. In some cases the landlord will let a tenant slide just to show activity in a centre.

In other cases, the landlord quit paying its lender, and in turn, quit collecting rent. Eventually the foreclosing lender appoints a receiver, who often just collects whatever a tenant can scrounge up at the moment.

The business of going broke is brisk. The local bankruptcy clerk’s office now accepts cases around the clock, including holidays. A local real estate developer and casino owner who pitched his projects incessantly on TV during the boom took the opportunity to file Chapter 7 on the Fourth.

Two days after the holiday the Las Vegas Review Journal business pages offered only four locally generated stories. Two of the stories were local bankruptcies, one reported that Moody’s is pessimistic about the Riviera’s prospects, and there was a single positive story about a local high-tech company.

No Miracles Coming for the Las Vegas Housing Market

At the same time, our realtor says it’s difficult to get deals done. There is little inventory and massive pools of investor money are trolling Las Vegas buying up houses. There are hedge funds looking to buy houses a hundred at a time, along with dozens of foreign and domestic investor buyers. All buying with cash. No financing required. Some houses attract 50 offers.
Individuals that require financing can forget it. It takes a cash offer of $10,000 over asking price to have a chance. The realtor did say that she can get some investors to accept a quick ten percent over their purchase price to flip their purchase to a buyer requiring financing.
KB Home is reportedly selling everything they put up and builders are actually raising prices here and there. Gone are the boom days when there were 500 active subdivisions. Today the number is 220, a ten percent drop from a year ago.

The lack of resale inventory and robust new home sales has builders buying land and pulling permits. Residential permits are up 40 percent from a year ago, and the price of residential land has increased to just short of $170,000 an acre, up from $150,000 a year ago. It’s still a long ways from the $600,000 an acre residential dirt fetched at the height of the boom.

“Things are coming back in the valley because there’s nothing in the resale market and the foreclosure process is just a drip,” Discovery Homes’ John Prlina told the Las Vegas Review Journal. ‘We don’t know what the banks are going to do. As a builder, that’s OK as long as they don’t pour them out at one time.’

Nevada’s robo-signing law, Assembly Bill 284, went into effect last October. The law requires lenders to provide an affidavit of authority to foreclose on homes. The law has slowed the process, stopping the flow of properties coming onto the market.

Experts question whether homeowners will be able to live free from mortgage payments forever. When the problem is resolved, a torrent of homes will hit the market.

Bill Lenhart of Sunbelt Development & Realty Partners told the Review Journal he believes the circumstances driving the Las Vegas market are ‘tenuous and eerily familiar’ to when the Obama Administration implemented the Federal Home Buyer Tax Credit.

That policy spurred new home sales in the first half of 2010. Land prices also spiked then, but five quarters of declining new home sales, lower median prices and falling land values followed, he said.

‘So don’t expect miracles from the Boondogglization programs,’ writes Bill Bonner in Dice Have No Memory, a book that deliciously skewers the Lagardes and Bernankes of the world and their incessant meddling.

But while the pols interfere and central bankers print, concerning Las Vegas land prices, Lenhart points out, ‘Right now, it could be decades before we return to the peak that we saw five or six years ago, with lots of peaks and valleys in between.’

The bailed-out zombies have no time to negotiate with the hoi polloi. After all, there is testimony to provide and matters in London to address. After all, Wall Street is secure in knowing they will never have to live with their mistakes. Main Street in Las Vegas has been given a reprieve from living with theirs. But the reprieve is only temporary. This desert is still underwater and will be for a long time.

Douglas French
Contributing Writer, Money Morning

Publisher’s Note: This article first appeared in Laissez Faire Today

From the Archives…

The Australian Housing Shortage That Never Existed
06-07-2012 – Kris Sayce

Did the European Summit Change the Market Trend?
05-07-2012 – Murray Dawes

Why Government Intervention Hinders Progress and Innovation
04-07-2012 – Kris Sayce

The Big Opportunities in the Oil Market That Will Lead to Profit
03-07-2012 – Dr. Alex Cowie

LIBOR – The Banking Scandal That Could Cause A Riot
02-07-2012 – Dr. Alex Cowie

The Las Vegas Real Estate Market: Underwater in the Desert

By Central Bank News

By Central Bank News

Article by Investment U

Big pharma is desperate for new revenue sources, two stalwarts of large-cap dividend payers just got better, and the SITFA.

Big Pharma M&A Heating Up

Two of the biggest names in big pharma just paid a 95% premium. That means they paid a price 95% higher than what other stock buyers were willing to pay for it.

Bristol-Myers (NYSE: BMY) and AstraZeneca (NYSE: AZN) are buying Amylin for $7 billion to get access to their diabetes drug, and, in a very complicated set up, Eli Lilly (NYSE: LLY) and Bemis Company (NYSE: BMS) are also tied into the deal.

The amazing part of this is Amylin was selling for as little as $8 a share last fall. It’s about $30 now, at its 52-week high.

Driving this kind of crazy buying is the fact that the big pharmas are losing patent protection on their top-producing drugs and are in a mad scramble to secure patents from smaller companies to generate revenue down the road.

Add to the mix the fact that Novo Nordisk (NYSE: NVO) and GlaxoSmithKline (NYSE: GSK) are both working on similar drugs to what Amylin has to offer, and this looks like a very questionable move, at best.

This is hardly a technical analysis of the situation, but it looks like panic buying to me. Paying that much of a premium for anything doesn’t look like good decision making to me.

When you consider the long-term track record of buyouts, and mergers and acquisitions, from a real profit perspective (which hasn’t been all that good), this has all the feel of a bad move for both companies.

I’d keep my distance from this one until the dust settles and we see just how profitable this move really is. When you look at all the mergers and buyouts involving the four companies in this one, it also smells like anti-trust issues to me.

Two Large-Cap Dividend Payers You Can Really Sink Your Teeth Into

Johnson & Johnson (NYSE: JNJ) and General Mills (NYSE: GIS), two of the really big and boring boys on the block, but both have lots of reasons to get very close to them.

GIS recently raised its dividend 8% to $.33 a share; it has raised it 13 times in the last eight years and has been consistently paying a dividend since 1898.

This big cap is making all the right moves.

A recent Barron’s article listed its five-year annual return at around 14% and S&P has a strong “Buy” on it. It has completed a $313-million share repurchase and recently expanded its reach into Latin America with its acquisition of Yoki Alimentos, a Brazilian food manufacturer.

There is almost nothing not to like about this one.

And right behind it, Barron’s was also singing the praises of JNJ, who has been kind of a lagging performer of late, but the recent Barron’s article gave lots of reason to give this one a new look.

The recent acquisition of Swiss medical device maker Synthes will, according to Barron’s, add immediately to the bottom line. This, a new CEO, and a string of recent new drug launches sets JNJ up as a strong growth and income player.

It has a 3.7% dividend and Raymond James called it “a warm blanket in a cold environment.

JNJ has 100 subsidiaries that sell everything from shampoo to cancer drugs. It has an AAA bond rating, a “Buy” and an overweight rating form JP Morgan and Jeffries.

There’s absolutely no reason to play around with questionable drug company moves when you have these two to choose from.

Finally, the SITFA

This week it goes to those people who are actually betting, they call it investing, in the outcomes of poker tournaments.

That’s right!

The big Texas Hold’em tournaments, that have been getting prime time billing on some cable networks, have hit the big time. There’s now a tournament that has a $1-million entry fee.

You heard me, $1 million just to play.

Well, since few poker players have a million dollars to plunk down, they have been soliciting investors, you heard me, investors to back them and pay the entry fee.

One 28-year-old player, a Noah Schwartz, according to the Journal, has raised $900,000 from investors.

The players, depending on which deal you’re looking at, get 25% to 60% of the winnings, and the payoffs are in the millions.

But come on, calling this investing? The odds here make options and micro-cap stocks look like widow and orphan investments.

I don’t know about you, but money is too hard to come by, even in good times, to get involved in this kind of craziness.

I wonder if their agreements prohibit drawing to an inside straight?

Article by Investment U

Article by Investment U

It’s a truism in our capitalist society: You don’t get rich working for someone else. You get rich working for yourself.

Yet the overwhelming majority of Americans don’t understand how to start their own business. They feel like they don’t have a good enough idea or enough capital to make a go of it. To top it off, most are understandably scared to leave their current job or risk their savings on a new enterprise. Still… they understand that they will never achieve financial independence – or significantly upgrade their lifestyle – without becoming an entrepreneur of some sort.

If this sounds familiar, let me make a recommendation. Pick up a copy of The Reluctant Entrepreneur by my friend and colleague Michael Masterson.

And buy a highlighter, too. You’re going to need it.

Michael Masterson is the real deal, an astonishingly successful wealth creator who has launched dozens of businesses in many different industries. He retired more than 20 years ago but, fortunately for the rest of us, found it unspeakably boring. Today he devotes his business life to instructing and mentoring others.

His new book is something special. It’s a call to action – and a step-by-step plan – to embrace your fears and start your own business without a lot of investment capital and with as little risk as humanly possible.

Of course, Masterson has written many business bestsellers, but this book is different. Here he focuses only on the first two stages of business growth – from zero to $1 million and from $1 million to $10 million. However, he begins with an even earlier stage of entrepreneurship – the point where you may be now: a “would-be” business owner. As the chapters unfold, he describes, in detail, how to develop a good, workable idea for a business and how to carefully put that plan into action.

The advice here is anything but theoretical. Using examples from his own business career – and from those he’s mentored – he shows you exactly how to proceed, how to overcome your fears, how to achieve business success without leaving your current career (at least at the outset) and without risking a lot of money. I personally know dozens of individuals who have seen their lives – and their fortunes – transformed by guidance and advice from Michael Masterson.

Too many people mistakenly believe you need a breakthrough technology, a patented product, or a visionary innovation to make it big in business. Not so.

Disney (NYSE: DIS) didn’t invent the amusement park. Amway Founder Rich DeVos didn’t invent multi-level marketing. Amazon’s (Nasdaq: AMZN) Jeff Bezos didn’t invest online retailing. Starbucks (Nasdaq: SBUX) Founder Howard Shultz didn’t invent the coffee shop.

Successful entrepreneurship is about finding an economic need – even a small one in your local community or online – and filling it. In The Reluctant Entrepreneur, Michael Masterson shows you how organization, smart risk management and the application of sound principles lead – almost inevitably – to real business success and enduring wealth. There’s a lifetime of wisdom and experience in these pages, expressed simply and engagingly by the most successful entrepreneur I know.

Why learn the hard way?

Good Investing,

Alexander Green

P.S. The Reluctant Entrepreneur is available at bookstores nationwide. Or to pick up a copy on sale at Amazon for less than 16 bucks, click here.

Article by Investment U